Urea sales jump 44pc in Jan-March on inventory build-up ahead of budget

KARACHI: Urea off-take soared 44 percent year on year to 1.25 million tons during the January-March period as dealers were building up inventory on the prospect of a price hike after a possible subsidy cut in the new budget, analysts said on Tuesday.

“Urea demand remained heavy compared to the last year as farmers’ demand has started to recover, while dealers also built their inventories fearing rise in bag prices,” Zeeshan Afzal, head of Research at Insight Securities said.

Government has been giving subsidy to farmers on buying of fertiliser, which is a key agriculture input, for the last couple of years. Last year, it, however, replaced cash

subsidy of Rs300/bag with reduced sales tax of Rs100/bag.

Government is also expected to phase out subsidy in the next budget scheduled on April 27.

“Going forward, demand for fertilisers would likely remain a function of government policies and with likely onset of kharif (summer) sowing season, we foresee demand to pick up,” Waqas Ahmed, an analyst at Taurus Securities said.

“Lower urea and DAP inventories would improve pricing power for local fertiliser manufacturers, thereby improving retention prices.”

Director Research Tahir Abbas at Arif Habib Securities said closing inventory for urea with the local producers, as of April 1, stood at 247,000 tons, while closing inventory of DAP stood at 203,000 tons in the same period.

“We view that with lower urea inventory levels and expected demand in the upcoming kharif season, pricing power of local manufacturers will restore going forward and eventually maximise urea prices in CY18,” Abbas agreed.

National Fertilizer Development Centre (NDFC) data showed that sales of diammonium phosphate increased 17 percent to 365,000 tons during the first quarter of the current calendar year.

NDFC further data showed that sales of urea stood at 342,000 tons in March, up 65 percent as compared to the same month a year earlier. In March, urea off-take slid eight percent over February. Sales of DAP fell three percent year on year, but rose 23 percent month on month to 150,000 tons in March.

“Muted sales on monthly basis were on account of high base effect of February 2018,” Abbas said.

“As the expected price hike in DAP became effective in the outgoing month, dealers booked higher orders in the period under review and hence, DAP off-take recorded a jump on month to month basis.”

In January-March, urea off-take of Fauji Fertilizer, Engro Fertilizer and Fauji Fertilizer Bin Qasim increased 52 percent, 85 percent and 133 percent, respectively.

The sales figures were recorded at 573,000 tons, 497,000 tons and 88,000 tons, respectively, during the quarter.

Government’s subsidy programme brought urea price down to Rs1,400/bag

during the last fiscal year of 2016/17 from Rs1,800/bag earlier.

The subsidy scheme ended on June 30 last year. But, it was extended for the current fiscal year.

The country is self-sufficient in fertiliser production with an annual capacity of six million tonnes little over the local demand.

Yet, the government subsidises prices of fertiliser to help farmers sustain the impact of production cost.